Workers' Profit Participation Fund (WPPF): Calulations, Brief Project Recital, Steps, Assess & review, Criteria for applicability, Defining profit & Power of exemption etc.

Workers' Profit Participation Fund (WPPF) is the fund that according to the Labor Law a company will deposit

80 percent of its total profit from 5 percent to the Workers' Participation Fund, then 10 percent to the Welfare Fund and finally 10 percent to the Workers' Welfare Foundation.

That is, if a company earns a net income of 100 Taka after paying income tax, the company will keep 5 BDT Taka separately from that 100 Taka. Eighty percent of that five Taka equal to four Taka should be divided equally among all the workers. Of the remaining twenty percent equal to one Taka, Fifty Paisa (coin)  shall be deposited in the Welfare Fund and the remaining Fifty Paisa shall be deposited in the Labor Welfare Foundation.

Mathematical calculations: Suppose a company earns Taka 100 after tax. From there he deposited five per cent for Workers Profit Participation Fund in the ratio of 80:10:10. Then (a) How much money will be deposited in the Labor Participation Fund? (b) How much money will be deposited in the welfare fund? (c) How much money will be deposited in Sramik Kalyan Foundation?

Source:
Given here is the total income of 100 Taka;
Five percent of 100 Taka = 5 Taka.
Eighty percent of 5Taka here
5*80/100 = 4.
5-4 from the rest = 1 Taka
Half of this one Taka will get 100 -2 = 50 paisa of welfare fund (one Taka equals 100 paisa). The remaining Fifty Paisa will go to the Shramik Kalyan Foundation

Brief Project Recital: Following amendment in 2013, the provisions of Chapter XV of Bangladesh Labour Act, 2006 has gone through a major change in relation to Workers Profits Participation Fund (WPPF). Its applicability has changed from “industrial undertaking” to “companies” which satisfy certain criteria for establishing WPPF trust and pay 5% of companies net profit to the “beneficiaries”. Thus, companies required to establish WPPF Trust is no longer limited to industrial undertaking, but also now applies to service sector. This amendment has necessitated AL to assess, design, and implement WPPF to all its eligible employees (beneficiaries’). Being a compliant and ethical organization, AL has taken measures to meet its obligations in this regard.

Follow the steps below to issue WPPF:

1. review of existing company structure

2. review of earning from different streams

3. assess AL’s obligation to form a WPPF Trust and paying 4.5% of its profits to the trust fund and 0.5% to Workers Welfare Foundation Fund

4. assess the eligibility of its employees to receive WPPF (years of service, nature and classification of employment.)

5. assess obligation on paying WPPF against dividend income against which WPPF been paid to its employees prior to paying the shareholders.

6. while WPPF eligibility and assessment is being determined in parallel

i) assess the number of WPPF eligible beneficiaries

ii) support fund allocation according to WPPF rules:

(iii) allocation of individual funds.

(iv) allocation of investment portions.

(v) welfare fund allocations.

(vi) allocation of fund payable to Bangladesh Labour Welfare Fund.

Assess & review the following documents, policies and procedures and suggest and necessary changes:

a. review of WPPF Trust Deed.

b. review of WPPF Trust Rules.

c. review of Welfare Fund Policy.

d. draft and review of WPPF related notice to employees.

e. review of draft BoT resolution for disbursement.

f. review of draft BoT resolution for opening Bank Accounts.

h. assess the step by step implementation plan with checklist/key milestones.

i. assess major risks of first-time implementation.

Criteria for applicability of Workers’ Profit Participation Fund:

1. On 22.08.2013 the Bangladesh Labour (Amendment) Act, 2013 (hereinafter “the 2013 Amendment) as passed, which amended among others, various provisions of Chapter XV of the Bangladesh Labour Act, 2006 (hereinafter “the Act”). Hence, all references below in relation to Chapter XV of the Bangladesh Labour Act 2006 (‘the Act) would be deemed to refer to amended position post 2013, unless specifically stated otherwise. Chapter XV of the Act deals with the Companies’ Profit Participation Fund (hereinafter “the funds”). The original act is framed in Bangla language and there is no official English text published by the Government. We have referred below unofficial English translations of some of the provisions for your ease of understanding. In case of any confusion and or contradiction we would refer to and rely on the Bangla text of the statute.

2. Post 2013 situation: Chapter XV of the Act applies to such companies and establishments, which satisfy any one of the following conditions, as mentioned in section 232(1) namely: a. the paid-up capital as on the last day of its accounting year is not less than one crore Taka (i.e. BDT 1,00,00,000) or

b. the value of the fixed / permanent assets as on the last day of the accounting year are worth not less than two crore Taka (i.e., BDT 2,00,00,000). Based on the information provided by the company it appears that the Company prima facie satisfies the above criteria as set out in Section 232(1) of the Act regarding applicability of Chapter XV of the Act.

Applicability of Criteria in Section 232 (3) of the Act:

1. It is also to be noted that section 232(3) provides that in respect of ‘hundred percent export-oriented industrial sector” and hundred percent foreign exchange investing sector” the provisions of Chapter XV would not be applicable and the Government would issue Rules to establish a separate fund and for related matters. It appears from the provisions of Section 232(3) that it deals with two sectors: (i) hundred percent export oriented industrial sectors and (ii) hundred percent foreign exchange investing sectors. It further appears from the provisions of Section 232(3) that the Parliament intends to create a separate legal framework for the above mentioned two areas/ sectors by issuing Rules for the constitution of a fund, constitution of the fund management board,

determination of the amount of grant and manner of its collection and utilization of the fund and the necessary provisions for other ancillary matters. Moreover, the language, i.e., “Notwithstanding anything contained in sub-sections (1) and (2)….” indicates that the provisions of Section 232(3) will override Section 232(1) and 232(2).

2. To the best of our knowledge, the Government does not yet appear to have issued any Rule as envisaged in Section 232(3) in respect of hundred percent foreign exchange investing sectors. The Government has issued provisions in Chapter XV (Rules 212 to 226) in Bangladesh Labour Rules 2015 to deal with constitution of separate fund for hundred percent export-oriented industries.

3. The management of AL during the video conference mentioned that their company does not satisfy the criteria of Section 232(3) of the Act and hence, it is not exempted from Section 232(1) of the Act. Defining “beneficiary”:

i. Since 2013, the Act has also widened the scope of applicability of Chapter XV by introducing the term “beneficiary” regarding eligibility to receive disbursements from WPPF Fund. The term “beneficiary” would include all persons, including a probationary, who have been employed by a company, in whatever post, for at least nine months, except the owner, a partner or a member of the Board of Directors. The term “owner” has been defined as the owner or management authority or the chief executive officer of a company or establishment.

ii. Therefore, under the Act as amended by the 2013 Amendment, all individuals employed by a company, other than its Chief Executive Officer and the members of the Board of Directors, would be entitled to WPPF payments. This definition is also consistent with provisions of Rule 233 of the Bangladesh Labour Rules 2015.

3. While Section 233(1)(jha) of the Act envisages that in order to be eligible as “beneficiary” one has to be employed for at least nine months; Section 241(2) also envisages that no beneficiary, without completing 6 months of service in a company during an accounting year, shall be entitled to participate in the Funds during that year. 

Defining “profit”: Regarding payment of WPPF, Section 233(1)(cha) provides that “profits” in relation to a company would mean such of the net profits “as defined in section 119(3) of the Companies Act, 1994 as are attributable to its business, trade, undertakings or to operations in Bangladesh”. The definition of “net profit” in Section 119(3) of the Companies Act, 1994 is as follows:

“For the purpose of this section ‘net profits' means the profits of the company calculated after allowing for all the usual working charges, interest on loans and advances, repairs and outgoing, depreciation, bounties, depreciation, bounties or subsidies received from Government or from a public statutory body profits by way of premium of the whole or part of the undertaking of the company, but without any deduction in respect of income- tax or super-tax, or any other tax or duty on income or for expenditure by way of intersection debentures or otherwise on capital account or on account of any sum which may be set aside in each year to of the profits for reserve of any other special fund.” Application of “Units” within a company:

1. The Act is silent about segregating a company’s funds into different units or creating separate funds for different units. However, Section 242(5) of the Act contains a curious provision, which rather creates questions. Section 242(5) of the Act provides, inter alia, as follows:

“242(5): In the event of transfer of a beneficiary from one office or unit of a company to another office or unit of that company, the benefits of the two Funds accrued in favour of the beneficiary shall be transferred to the Funds of that office or unit to which he is so transferred, and his service in the previous office or unit shall be counted towards his entitlement to the benefits of the Funds of the office or unit to which he is so transferred.”

2. Therefore, this provision, i.e. section 242(5), provides an indication or creates a scope for a company to set up separate Funds if the company maintains segregated offices or units. The statute does not elaborate any further on this aspect.

 

Power of exemption:

1. Section 324 of the Act provides certain power to the Government to grant exemption by way of issuing gazette notification. However, Section 324 does not specify that the Government would have power to grant exemption regarding applicability of Chapter XV.

2. On the other hand, Rule 236(4) of the Bangladesh Labour Rules 2015 provide, inter alia, that in case the application of Chapter XV is suspended/exempted in respect of a company for any reason whatsoever, the Funds shall be distributed among the beneficiaries on the basis of net asset value accrued until that specific date and the Board shall decide whether the disbursement shall be made in cash or assets.

3. Thus, there is some apparent contradiction between provisions of Section 324 of the Act and Rule 236(4) of the Rules and we will have to wait either for any amendment to the Rules or a judicial interpretation from a Court to resolve it.